- JD Sports’ results beat expectations and show the athleisure market has stamina
- This good news wasn’t enough to stop JD’s shares falling as it warned about currency headwinds
- Nike shares down 6% in pre-market trading after it withdraws full-year guidance
- Incoming CEO at Nike needs to act fast to put the company back on top
“Cracks in the athleisure market increasingly look like they are more to do with company-specific problems than an industry losing momentum,” says Dan Coatsworth, investment analyst at AJ Bell.
“JD Sports’ better than expected first-half profit shows that demand is still robust for trainers and tracksuits. In contrast, Nike’s struggles have gone from bad to worse as its first quarter results were riddled with problems of its own making.
“Nike’s ‘Just Do It’ tagline is meant to inspire athletes, instead the brand is now more like a player past its prime. A lot is riding on incoming CEO Elliott Hill getting the business back into shape and reclaiming a place on the winners’ podium.”
Where the athleisure market went wrong
“JD Sports got off on the wrong foot at the start of 2024 with a profit warning linked to tough market conditions. This was followed by Nike failing to live up to expectations and then a few howlers from Lululemon, which fell flat on its face after making some bad decisions. It failed to adequately stock the sizes or colours that customers wanted and then suffered the embarrassment of having to pull its Breezethrough product line after negative reviews and customer complaints about the leggings being uncomfortable to wear.
“It wasn’t quite ‘boom to bust’ for the athleisure industry, but it was clear it had hit a few snags along the way. Initially fuelled by consumers wearing sportswear as everyday clothing, this trend extended to footwear and created a giant industry which made companies like JD Sports superstars in the retail sector.”
Challenges for Nike to overcome
“Nike is now paying the price for taking its eyes off the ball. Rivals like On and Hoka have taken market share, partially because their running shoes are now adopted as everyday footwear, but also because Nike hasn’t moved with the times.
“The company has relied too much on its Air Force, Air Jordan and Dunk lines and failed to innovate elsewhere. Nike is now purposely scaling back availability of these core product lines, implying it is to make room for new ideas but, in reality, it could also be down to consumer boredom with the brands, at least for now.
“Nike says internally these brands are classified as ‘iconic’ and will remain a key part of its arsenal. Yet it is fully aware that consumers want the latest fashions and that means coming up with new and exciting products on a regular basis – something that Nike has failed to do, and it will now have to play catch-up.”
Cutting out the middleman
“A strategy to sell more products direct to the consumer isn’t living up to expectations. Nike wanted to bypass the middleman for part of its sales, not only to engage more with its customer base and learn about their preferences but also to make bigger profit margins. While it is not unique in doing so, it will be interesting to see if there is a radical change in strategy once the new CEO has reviewed the business.
“Nike has also committed the cardinal sin of overestimating how many shoes it would sell, leaving it with unsold items that have been discounted to shift stock. Discounting is the avenue of last resort as there is always a danger that consumers get used to cheaper prices and expect them forever. Weaning people off discounts is incredibly hard.
“JD Sports is seeing stronger trading in footwear than apparel, although growth is being achieved in both areas. Poor weather has hampered clothing sales, yet JD says demand was strong for casual footwear, which makes Nike’s struggles even more worrying.
“The beauty of JD’s model is that it isn’t reliant on a single brand to do well. Instead, it stocks a range of brands, from On and Adidas to Hoka and Converse, and that gives it flexibility to capitalise on the most in-demand products. That puts a greater emphasis on Nike to improve relationships with JD and ensure its shoes still have pride of place on the shelf. It won’t be an easy conversation given Nike’s efforts to bypass JD and other retailers with direct-to-consumer sales – a strategy that could come to haunt it.”
